Illinois’ backlog of bills to nearly triple in five years: Civic Federation
BY ZACH BUCHHEIT Staff Reporter February 25, 2013 1:38AM
Updated: March 26, 2013 9:49AM
SPRINGFIELD — Illinois’ massive stack of unpaid bills will nearly triple to $22 billion within five years unless lawmakers act to curb pension and Medicaid costs, according to an analysis released by the Chicago-based Civic Federation.
“It is a horrific financial situation the state has dug itself into,” Laurence Msall, president of the Civic Federation said. “You don’t have to take our word for it. Just look at the credit rating agencies’ [recent downgrades]. It should be a very embarrassing situation for everybody associated with the state of Illinois.”
While still in the red, the state’s five-year fiscal outlook has significantly improved since last year when the same watchdog group projected a $35 billion backlog. The better forecast this year is largely due to $1.6 billion in Medicaid cuts signed into law by Gov. Pat Quinn last June.
“We welcome the Civic Federation’s analysis of Illinois’ budget challenges,” said Abdon Pallasch, assistant budget director in the Governor’s Office of Management and Budget. “The [group] continues to support our efforts to reform the state’s public pension systems, which will stabilize the state’s finances.”
The potential explosion in unpaid bills would represent a roughly 178 percent increase from the state’s current level of $7.8 billion and would mean funding for already suffering programs in areas like education and health care would likely be strained further.
“It’s financially reckless and unreasonable that service providers will continue to serve the state while waiting to be paid,” Msall said.
Without meaningful reform, pension costs will continue to overwhelm the state’s budget. Total pension payments – including contributions and debt service on pension bonds – would increase nearly 30 percent from $6.7 billion this year to $8.6 billion in fiscal year 2018, the Civic Federation warns.
If that scenario were to play out over the next half-decade, the state’s total pension payments would eat up nearly one-third of state-generated revenue, whereas today the payments consume about 22 percent.
“There’s no magic bullet on the horizon that’s going to avoid the need for dramatic pension reform,” Msall said. “[State employees] made their contributions, they did their job, but unfortunately the state did not make its contributions.”
Several pension-fix packages are circulating the Legislature, with some raising the retirement age and increasing employees’ pension contributions. But Msall warns any solution must include significant limits on retirees’ automatic annual benefit increases, the largest driver of the state’s $96 billion unfunded liability.
Quinn supports a pension proposal that would temporarily suspend and reduce the amount of automatic increases, however, that bill does not include a measure the Civic Federation says is key to solving the problem.
“We’ve looked at Senate Bill 1, but it does not include the [normal cost] shift to suburban and downstate school districts, public universities and community colleges,” Msall said.
The Civic Federation believes pension contributions could decline by $2.5 billion in FY18 and the projected backlog of unpaid bills could decrease to $10.8 billion if the group’s reforms are adopted. The savings are based on actuarial analyses of bills sponsored by Sen. Daniel Biss (D-Evanston) and Rep. Elaine Nekritz (D-Northbrook).
The watchdog group also recommends reductions in retiree health insurance costs, along with expanding Medicaid eligibility under the Affordable Care Act and continuing to move the developmentally disabled into community care settings.
While Quinn is currently negotiating with union leaders to have them pay towards their health insurance, Msall thinks there’s more to be done.
“The governor has indicated he’s going to collectively bargain, but that doesn’t explain why we haven’t done anything with the judges or the General Assembly or others not subject to collective bargaining,” he said.
The Civic Federation’s dire projections also factor in less revenue with the partial expiration of state income tax rate increases at the end of 2014. In five years, the institute projects Illinois will receive more than $3 billion less in personal and corporate income taxes, representing a nearly 18 percent slide from this year.
A lack of any significant pension reform with such drastic drops in revenue will force Illinois to operate under a projected $4.2 billion deficit in FY18, compared to this year’s $667 million surplus.
Quinn has acknowledged the state’s fiscal crisis is more than just a revenue problem, and Msall agrees but doesn’t see a real solution without any cuts.
“I think the obvious issue is the state’s broke,” he said. “It’s going to need increased contributions from the retirees just to help maintain these benefit programs, but there is no room when you’re dragging $7 billion from year to year and revenue’s forecast is dropping.”